Morning Blend on Mater Dei Radio: “Retirement Accounts for Children”
It’s important to think about saving for retirement as early as possible. Sometimes that means saving for your children as soon as they are born!
How Do Trump Accounts Work?
Trump accounts are being offered starting July 4th, 2026. Any child, 18 or younger, with a social security account can have access to a Trump account. Any child with a birth year between 2025-2028 is given $1000 contribution to the account. Millions of Americans have already signed their children up for them
As with anything, there are restrictions. You can’t go pull the money money out whenever you want. The account remains “locked” until the child turns 18. At this time they can consider what to do with the funds.
If you only ever leave that $1000 contribution in there to grow, it’s reasonable to assume your child may walk away with $4,000-$6,000 when they turn 18. At the age of 18, the money will convert to function similarly to an IRA. The draw here is that we usually can’t start saving for retirement until we are in the workforce. Now, with these Trump accounts, that saving can start even earlier!
If you plan on continuing to contribute to the Trump account in your child’s first 18 years, you’ll need to consider a few things. The maximum annual contribution is $5,000. This includes anybody who is contributing to the account.
If you really want to extend the life and value of the account, ideally your freshly 18 year-old wouldn’t touch the money! Instead, they could begin makin contributions to it and enjoy it in their retirement years.
Of course, we have emergencies, fall on hard times, or other extenuating circumstances. They must be 18 to gain access to the money. If your child needs to cash out the account, there is no restriction on what they use it for. These funds will however count as taxable income, although no penalties apply.
If someone is looking for a savings account specifically for college or future schooling, the Trump account isn’t necessarily the best option. If you are interested in starting a retirement account for your child, the Trump account may be perfect for you.
What Could It Look Like In The Future?
Here is real world example of how to best use the Trump account to your child’s benefit and what it can look like when they reach their mid-20’s. Say you have a baby in 2026. You contribute $4,000 to the account, on top of the $1,000 seed contribution to max it out. Continue maxing out the account until they reach age 17. Once they are of age, the contributions have stopped but all of that compounding interest has now built up. If it gained a reasonable 8% each year, they could be looking at an account value around $374,000 at age 25. I mention 25 because at this time, they might consider converting this to a Roth account.
To take it one step further, if they continue to contribute to it as a Roth, and max it out (I used $7,000) annually, they could be looking at around $9 million by the time they reach 65 years old. Even if they don’t continue contributing after converting it to a Roth at 25 years old but they gained that 8% annually, they’re still looking at $7.5 million at age 6.5. That’s nothing to pout about!
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